In this 2016 file photo, state Sen. Paul Bettencourt, R-Houston and chairman of the Select Committee on Property Tax Reform and Relief, unveils Senate Bill 2 in advance of the regular legislative session that started in January and ended in May. Lawmakers will reconvene Tuesday, and property taxes are among the topics to be tackled. Ralph Barrera / AMERICAN STATESMAN
Texas lawmakers are fixin’ to fiddle with property taxes while federal lawmakers might be fixin’ to fiddle with something important about property taxes.
We’ll see what tune the semi-simultaneous fiddlin’ produces.
Many Texans believe our property taxes, the financial lifeblood of public schools, are too damn high. And many Texans believe school funding is too damn low. It’s a very challenging, very real equation that lawmakers have been wrestling with since shortly after property was invented and government quickly found a way to tax it.
The vexing, oft-litigated topic will come up again at the special legislative session that begins Tuesday.
I’ve long theorized that the best way to incite a full-frontal property tax revolt would be to make everybody write a check to pay the annual levy. No more doing it through escrow, which, after a monthly payment or two to your lender, somehow lessens the fiscal pain of the property tax.
To make sure you feel the fiscal pain, maybe you should have to show up at the tax office and pay the tax in cash at a drive-through window with a long line.
The reality is the only day that many folks realize how much they’re paying in property tax is April 14 when they’re scrambling to file their federal income tax return and are delighted to find a big ol’ deductible number on their property tax statement. The Travis County Tax Office says that in 2016, 39.5 percent of local property tax payments for residences for which the homestead exemption was claimed were paid by a mortgage company, not directly by the homeowner.
Up in D.C., President Donald Trump wants to end deductibility of local and state taxes. It’s part of his going-nowhere-so-far tax reform plan. Obviously, that particular proposed change could be a huge, potentially deal-breaking deal in states with their own income taxes, as well.
Texas has no state income tax to deduct from federal income tax. For many Texans the property tax is the largest state or local levy they pay — unless they make significant purchases and pay a lot of sales tax.
“Property tax is the largest tax imposed in Texas,” according to a December report by the Texas Comptroller’s office. “In 2015, property tax generated more than $52 billion for all taxing units that can levy a property tax, and it represented almost 48 percent of all taxes imposed by state government and local taxing units.”
The next most lucrative levy in Texas is the sales tax, which, state and local combined, totaled $34 billion in 2015, 31 percent of all taxes.
The Trump tax plan was announced in April and has been back-burnered during the health care debate, though our president assured us in a Wednesday tweet that his White House “is functioning perfectly, focused on HealthCare, Tax Cuts/Reform & many other things. I have very little time for watching T.V.” So that’s good.
His tax plan includes cutting the corporate rate from 35 percent to 15 percent; reducing the current seven brackets to three (10, 25 and 35 percent); and keeping the deductions for mortgage interest and charitable giving but eliminating others, including state and local taxes.
Seems like anything Texas lawmakers decide to do about property taxes might want to take into account the possibility of the end of federal deductibility of that tax.
There’s another, potentially countervailing, facet to note in the Trump plan: It includes a doubling of the standard deduction, the amount you can deduct without itemizing (or actually spending a penny on deductible expenses). The standard deduction now is $6,350 for individuals and $12,700 for married couples filing jointly.
You’ll have to do your own math to figure out if you’d do better or worse with that proposed change.
As Washington Post real estate columnist Kenneth R. Harney wrote this week, doubling the standard deduction amounts to “watering down the mortgage-interest deduction.”
Lots of folks would be surprised if we wind up with a federal tax reform plan that does away with the deductibility of local and state taxes, though there seems to be consensus the federal tax system is due in for an overhaul, something it hasn’t had since 1986.
But it’s a notable alignment of things that state lawmakers will be dabbling with Texas’ largest levy while Congress might be working toward a major change in federal law concerning that levy.
Because I strive to be your friendly, helpful newspaper guy, let’s end with the greatest tax-saving tip I’ve ever heard. It came from noted financial expert Steve Martin on “Saturday Night Live” many years ago, back when millionaires weren’t a dime a dozen:
“You can be a millionaire and never pay taxes. … First, get a million dollars. … Now you say, ‘Steve, what do I say to the tax man when he comes to my door and says you have never paid taxes?’ Two simple words in the English language, ‘I forgot.’”
If that doesn’t work, please don’t tell the feds I suggested it.